Smart Investors Know How to Get the Best Returns

By Dale Gillham | Published 11 November 2019

When it comes to investing in the stock market, I can guarantee you that you sit in one of two camps. Either you believe it is high risk and similar to gambling where you are likely to lose your money or you believe you can make money from the market.

Those who believe it is gambling avoid the stock market altogether while those who believe they can make money fail to get consistently good returns.

In fact, the majority of those who invest in the stock market are wasting a lot of time and over complicating the process, when this need not be the case. Let me explain.

Over the last 10 years the S&P 500 has achieved an annual average return of just over 11 percent, which isn’t too bad if all you did was buy and hold. That said, you can improve your returns while minimizing your risk if all you did was narrow down your focus to the top 10 stocks in the S&P 500, like Apple, Amazon, Microsoft among others.

In the last 10 years, the top 10 stocks by market capitalization achieved an annual average return of around 17 percent not including dividends.

It may surprise you to know that on a yearly basis the S&P 500 achieves a positive yearly return approximately 70 percent of the time, while around 46 per cent of the time it achieves an annual return greater than 10 percent.

What this demonstrates is that over any 10 year period, you can make money in 7 of those years, and around 46 percent of the time you can expect the return to be greater than 10 percent. But the real kicker is that during the 7 years you can make money, there is a possibility you will make a return of over 20 percent around 26 percent of the time.

But as we know all markets fall away. So during the 3 years it does fall you can expect that 14 percent of the time the fall will be greater than 10 percent.

These statistics are based on the movements in the stock market over the past 100 years. Therefore, it’s easy to determine that if you simply followed the S&P 500, you would make money over any 10 year period.

So what are you waiting for? Just buying the top 10 stocks in the S&P 500 and holding them for 10 years will see you achieve good returns. Now just imagine what you could achieve if you had some knowledge and rules around investing.

What is happening in the US stock market?

Tesla has continued to surprise the market given that it is still rising and looks set to continue to rise. You may remember that the short sellers were surprised to find Tesla had make a profit, which caused a short squeeze on the stock resulting in it jumping in price jump nearly 30 percent over two days.

So is it likely that the S&P 500 will experience a Santa Claus rally? For those of you not familiar with this term, it describes a sustained increase in the stock market that occurs in the last week of December through to the first two trading days in January.

While there are numerous explanations as to why a Santa Claus rally occurs, the point is that we know more than two-thirds of the time dating back to the 1960s have resulted in a Santa Claus rally for shareholders. So sit back and enjoy the festive season given that we know around 70 percent of the time the stock market makes a positive return. 

Back to Market Report Videos